Both spouses are Trustees.
Beneficiaries are listed separately for each spouse, and when a spouse dies their beneficiaries get all assets on deceased spouse's schedule, plus half of the property in schedule 3 (joint property).

Question 1) Are trust assets on Schedule 1 subject to claims of creditors of Spouse 2 (or liability lawsuits against Spouse 2), because Spouse 2 is a trustee of the Joint trust?

Question 2) Hypothetical scenario: A Vanguard brokerage account, containing 100 shares of VTI on the date the trust is notarized, is listed on Schedule 1. One month later, that brokerage account receives a deposit of cash from a non-trust joint bank account, then the money is used to buy 100 shares of VXUS. Are the shares of VXUS jointly owned, or individually owned? How does the IRS know who owns the new shares if Vanguard reports the purchase as ordered by "XXX and YYY as trustees of the XXX and YYY Revocable Living Trust?"

Question 3) I am thinking individual trusts might be better for asset protection purposes. But if I use separate trusts, do I need to create a third joint trust to serve as a "family pot trust" in the case both of us pass before our kids are adults (or old enough to handle a 7 figure inheritance)?

ps. before you say "ask your lawyer" I drafted the existing wills and trusts using software. Asking a lawyer will cost $250/hr or more, so I'm hoping to save some dough by posting Book recommendations are welcome. I have read 4 NOLO books but they didn't get deep enough into these details.

Your will: I leave all my property to my beneficiaries.
Spouse will: I leave all my property to my beneficiaries.

And then don't own any property that is joint with right of survivorship. Own property in a form that preserves your separate interests, for example as community property in California or tenants in common.

Following up on sscritic's comments, why do you have a JOINT trust? Most of the problems you mentioned can be eliminated with separate trusts. I've always felt joint trusts accomplish nothing and only create confusion as you have outlined. Talk with your lawyer about each of you having a trust.
John

Another thought. From the point of view of your estates, you are two single people living together. His goes to his heirs, and hers goes to her heirs. Two single people living together buy property as tenants in common if they want to keep their two halves separate. Would two single people living together have one shared trust? I don't think so.

I have two reasons for using a trust(s) 1) to assign a trustee to manage assets for our minor children, 2) to avoid probate.
I'm not trying to reduce estate taxes.
I'll read the links and learn about the difference between jtwros and tenancy in common (after work) before I respond further.
Thanks folks!

Just to be clear:
You have minor children together. When you die, your assets are to go to your children and not your spouse.

When I first read your post, I was thinking second marriage with children from the previous marriages, but none in common. Or is that the case, and there are minor children from both previous marriages?

Anon1234 wrote:I'll read the links and learn about the difference between jtwros and tenancy in common (after work) before I respond further.
Thanks folks!

I'll make that easy for you. JTWROS simply means the property passes automatically to the survivor. Tenants in Common it doesn't pass to survivor, as it passes according to your will or by intestacy.
John

Sorry for the confusion about kids. This is only marriage for both of us and kids(2) are from this marriage.

Edit: my goal is to minimize joint assets, so that if we get sued and judgement goes above our insurance, that we only lose approx half our assets. I am not going to buy more malpractice insurance.

Given that, In the even one spouse dies I want all assets to go to the other spouse without probate. In the events both spouses die all assets should be held on trust for our kids. I would be ok with family pot trust or individual child trusts because they are very close in age and they would each have 2M+ inheritance, so no concern for one running out of cash.

Last edited by Anon1234 on Mon Aug 27, 2012 12:31 pm, edited 1 time in total.

Anon1234 wrote:I'll read the links and learn about the difference between jtwros and tenancy in common (after work) before I respond further.
Thanks folks!

I'll make that easy for you. JTWROS simply means the property passes automatically to the survivor. Tenants in Common it doesn't pass to survivor, as it passes according to your will or by intestacy.
John

OK. Then tenants in common does not satisfy my requirement of maintaining individual ownership for asset protection purposes.

JDCPAEsq wrote:
I'll make that easy for you. JTWROS simply means the property passes automatically to the survivor. Tenants in Common it doesn't pass to survivor, as it passes according to your will or by intestacy.
John

OK. Then tenants in common does not satisfy my requirement of maintaining individual ownership for asset protection purposes.

Are you sure? If you and a fellow doctor buy a property as tenants in common, will your half be at risk because of a suit against him? I don't know, but liability and how property passes seem like different subjects to me. The correct answer might be state specific.

There is a lawyer "Robert J. Mintz" who wrote a free-if-you-give-him-your-email 200+ page downloadable asset protection guide. Here is a quote from that guide, p.134:

If one spouse is more vulnerable to potential lawsuits than the other
spouse, property can simply be transferred by gift from that spouse to
a living trust for the other. For example, if the husband is a physician
with a high vulnerability to lawsuits and the wife is a schoolteacher
with low lawsuit vulnerability, property can be transferred by gift from
Husband to Wife’s living trust to reduce the amount of assets subject
to loss in the event of a lawsuit. In theory, all assets could be moved
out of the name of Husband and into the name of Wife’s trust. In the
event of a subsequent lawsuit and judgment against the husband, no
assets would be available to satisfy the creditor.

This is the best reference I have, granted, it's not as good as citing case law or the CFR.

Last edited by Anon1234 on Mon Aug 27, 2012 4:34 pm, edited 1 time in total.

Anon1234 wrote:
Given that, In the even one spouse dies I want all assets to go to the other spouse without probate.

That's not what you wrote (or how I understood what you wrote). I distinguished spouse from beneficiaries (knowing that a spouse might be one).

Beneficiaries are listed separately for each spouse, and when a spouse dies their beneficiaries get all assets on deceased spouse's schedule, plus half of the property in schedule 3 (joint property).

If what you wrote in the first quote is accurate, your only beneficiary is your spouse (while alive) and vice-versa.

This is correct. Primary beneficiary is spouse, alternate beneficiaries are the kids, in equal shares. I used the term beneficiaries generically, but meaning 100% to spouse if alive, if not, then 50% to each kid.
Sorry, again, for the confusion.

IMO, drafting your own will and trust is not a good idea. There are complex issues involved, and if the documents are not done exactly right, they will not achieve the desired results. The big concern is that if/when problems arise from improperly prepared documents, it will be too late to do anything about it.

I would suggest that a lawyer not provide his/her own medical services. Similarly, I would suggest a doctor not provide his/her own legal services. It's just not worth the risk of doing it wrong. Some things are worth paying for. This is one of them.

Disclosure: I am not and never was an attorney or a doctor nor do I sell anything.

That may be true. But i still want to understand what an attorney is doing for me and i cannot afford to have them teach me, so I am here asking for help. I have had introductory meetings with three lawyers (total cost $435) and got radically different advice.

Lawyer 1: wills and testamentary trust.
Lawyer 2: pour over wills, individual trusts & ILITs
Lawyer 3: wills and joint trust and then said "there are many ways to skin this cat"

To make a counterpoint, many here do their own investment plans & tax returns. And, IMHO you should not blindly trust your Physician or your Attorney. If the stakes are high you should inform yourself and then make a decision.

My parents recently redid their estate plan. Their lawyer put everything in joint trust, without thought about the tax advantage for the surviving spouse of having some assets with 100% step and some with 0% step(versus all assets at 50% step). That's one example of self advocacy.

Hello, all. I am the attorney who wrote the blog post cited above by kaneohe (thank you very much for the link). I am also a CFP, and am proud to say that I have never earned one penny of commission or "percentage of assets" in my entire career. I was very pleased to see my site linked here, as I have been a proponent of Vanguard and indexing since childhood.

I would like to correct one of Mr. Anon1234's notions -- not all estate planning lawyers charge $250 per hour just to speak to them; the growing trend is to charge a flat fee for the full estate plan. I'm also a bit disappointed (yet not shocked) that Mr. Anon1234 had to pay $435 for three initial meetings -- it is also a common practice of many estate planning lawyers to give a free 30-to-60-minute first meeting to discuss your situation.

Now, I could spend time discussing the risks in attempting to do estate planning without an attorney, especially when you're dealing with an estate in the 7 figures, but I am also quite sympathetic to Mr. Anon1234's concerns regarding expense and self-advocacy. It is quite difficult to know who to trust while constantly wondering if you are being ripped off. Heck, even this message could be viewed as self-serving -- anyone reading has no idea whether or not I'm honest, competent, or out to make a quick buck.

With all that in mind, I humbly offer some brief thoughts regarding Mr. Anon1234's questions, with the caveat that I don't know what state he lives in or what his ultimate goals are for him and his family.

1) Generally, all the assets held in a joint trust could become subject to an individual spouse's creditors. However, this depends a good deal on state law. For example, in a few non-community property states, any assets transferred into a joint trust that was previously held as "tenants by the entirety" (i.e. jointly between spouses only) will be still be protected as tenancy by the entirety property even if the half of the asset is listed on the individual schedules; other states do not protect spouses in this way.

2) It's certainly possible for you to maintain "yours, mine, and ours" lists with strict bookkeeping, but doing so could tempt fate because the IRS could very well look at the joint trustee set-up as giving both spouses the ability to control all trust assets regardless of schedule. Changing the non-trust proceeds from jointly-held to an individual VXUS account is the kind of transaction that could trigger this interpretation by the IRS, unless the trust is drafted precisely (BTW, it would be tough to find "boilerplate" language to cover this). In your scenario, if this is a real concern, creating separate trusts for Mr. Anon1234 and Mrs. Anon1234 would make matters much easier.

3) To some degree, you're right that separate trusts would protect assets, but this would not provide any more protection than if each spouse simply owned property separately. The big asset protection benefits of revocable trusts do not occur until after both spouses are deceased -- once the trust(s) become irrevocable, it becomes much harder for creditors to get at the trust principal, especially if your state allows "spendthrift" clauses. A third trust is not necessary because each individual trust is ideally drafted to split the decedent's share into marital and family shares for tax efficiency after the first death, and then drafted so that separate shares can be merged into a "pot trust" after the second death.

I hope this helps to some degree. Let me know if you have any further questions.

Take care,
Scott

P.S. This is a very interesting topic to me. I was wondering if anyone would object to me writing a blog post about this thread (I would of course treat the participants respectfully and also provide a friendly and positive reference / link to this site).

Apologies in advance for this shameless hijack of this thread but perhaps there might be some interest and it is somewhat, tho
remotely , related. When we set up our joint living trust , we had (in principle) these same 3 schedules but all property was joint so only Schedule 3 had entries. The attorney requested that we annually send an update listing additions and deletions to the schedule. Then later he said to stop sending them.......I don't remember if he said they were no longer necessary or if we should just update them and keep for ourselves.

Somehow I got the impression that they were no longer necessary and that as long as I titled the assets correctly, they would be in the trust. Is that a correct interpretation? One of the reasons I ask is that someday the trust needs to be updated and esp. if we pick another attorney, he will ask (I assume) for those schedules. Since I don't really want to spread details around where they could be hacked or stolen, if I decline to provide those schedules and simply have the assets titled in the name of the trust, will they be in the trust? In other words, are the schedules merely a way of listing what is in the trust so the heirs can find them or are they a legal necessity to put them in the trust?

Zookey wrote:
P.S. This is a very interesting topic to me. I was wondering if anyone would object to me writing a blog post about this thread (I would of course treat the participants respectfully and also provide a friendly and positive reference / link to this site).

Scott,
I sincerely thank you for the detailed and well written post.
And, I look forward to reading the blog. I will not have hard feelings if you say I have a fool for a client. Better to hear it now, when I can still do something about it..

To explain the $435. Two lawyers provided free consultations. The third is a lawyer my family uses. But i no longer live in a state where he is licensed. He answers my quick questions for free (at least at my current rate of questioning), but when I sit him down with 20 detailed questions, trying to get him to explain which of the others is right, he does charge me. Ps this is not the same lawyer that put all my parents assets in joint trust without regard for tax implications.
L
I will comment that if you are a do-it-yourselfer by nature, the nolo books are empowering.

An update on my situation: I have a plan. I'm going to sleep on it for a week or so before implementing.
Pour over wills into joint trust. Wills assign guardian.
Simple joint trust will hold only 1 thing: "all personal property at our address"
It will create child subtrusts and assign a trustee in the case spouses both pass.
401ks, 403bs, SEPs, IRAs, and taxable investments will be individually owned and transferred by TOD to trust.
Joint checking will pass by JTWROS (probate if both spouses pass).
Emergency funds individually owned pass by POD to trust.
Life insurance benefits go to trust.
Automobiles individually owned, pass by probate.
I-bonds pass by JTWROS (probate if both spouses pass).
Maximum probate amount will be kept below the small estate limit of my state.
No real estate is involved.

Apologies in advance for this shameless hijack of this thread but perhaps there might be some interest and it is somewhat, tho
remotely , related. When we set up our joint living trust , we had (in principle) these same 3 schedules but all property was joint so only Schedule 3 had entries. The attorney requested that we annually send an update listing additions and deletions to the schedule. Then later he said to stop sending them.......I don't remember if he said they were no longer necessary or if we should just update them and keep for ourselves.

Somehow I got the impression that they were no longer necessary and that as long as I titled the assets correctly, they would be in the trust. Is that a correct interpretation? One of the reasons I ask is that someday the trust needs to be updated and esp. if we pick another attorney, he will ask (I assume) for those schedules. Since I don't really want to spread details around where they could be hacked or stolen, if I decline to provide those schedules and simply have the assets titled in the name of the trust, will they be in the trust? In other words, are the schedules merely a way of listing what is in the trust so the heirs can find them or are they a legal necessity to put them in the trust?

Why leave any doubt? NOLO has a form in the book "Ceate your own living trust" borrow a copy from your library, print off 20 copies and keep your trust up to date every time you add something.

kaneohe wrote:
Apologies in advance for this shameless hijack of this thread but perhaps there might be some interest and it is somewhat, tho
remotely , related. When we set up our joint living trust , we had (in principle) these same 3 schedules but all property was joint so only Schedule 3 had entries. The attorney requested that we annually send an update listing additions and deletions to the schedule. Then later he said to stop sending them.......I don't remember if he said they were no longer necessary or if we should just update them and keep for ourselves.

Somehow I got the impression that they were no longer necessary and that as long as I titled the assets correctly, they would be in the trust. Is that a correct interpretation? One of the reasons I ask is that someday the trust needs to be updated and esp. if we pick another attorney, he will ask (I assume) for those schedules. Since I don't really want to spread details around where they could be hacked or stolen, if I decline to provide those schedules and simply have the assets titled in the name of the trust, will they be in the trust? In other words, are the schedules merely a way of listing what is in the trust so the heirs can find them or are they a legal necessity to put them in the trust?

It is not necessary for the trust to name all of its own assets -- it is correct to say that as long as the assets are titled correctly, they are in the trust. The use of schedules at all tends mainly to be based on tradition, and perhaps also for the benefit of the trustees and heirs as you mentioned. In fact, in most situations, I usually recommend only putting a nominal amount on the Schedules on signing day, such as $10 cash, and keeping proof of each retitled assets in the estate planning portfolio.

The key concern that must be dealt with is for there to be no disagreement between your belief in how your assets are titled and any outsiders' (such as banks, investment companies, the county re: deeds, etc) beliefs. Remember that merely retitling an asset within your trust on a Schedule will not be adequate to fulfill the purposes of the trust. For example, if your Schedule lists your Vanguard account as the husband's individual property, but the couple never retitles the Vanguard account into the trust, then Vanguard will not be able to follow any successor trustees' instructions upon the husband's incapacity or death.

Anon1234 wrote:
Scott,
I sincerely thank you for the detailed and well written post.
And, I look forward to reading the blog. I will not have hard feelings if you say I have a fool for a client. Better to hear it now, when I can still do something about it..

To explain the $435. Two lawyers provided free consultations. The third is a lawyer my family uses. But i no longer live in a state where he is licensed. He answers my quick questions for free (at least at my current rate of questioning), but when I sit him down with 20 detailed questions, trying to get him to explain which of the others is right, he does charge me. Ps this is not the same lawyer that put all my parents assets in joint trust without regard for tax implications.
L
I will comment that if you are a do-it-yourselfer by nature, the nolo books are empowering.

An update on my situation: I have a plan. I'm going to sleep on it for a week or so before implementing.
Pour over wills into joint trust. Wills assign guardian.
Simple joint trust will hold only 1 thing: "all personal property at our address"
It will create child subtrusts and assign a trustee in the case spouses both pass.
401ks, 403bs, SEPs, IRAs, and taxable investments will be individually owned and transferred by TOD to trust.
Joint checking will pass by JTWROS (probate if both spouses pass).
Emergency funds individually owned pass by POD to trust.
Life insurance benefits go to trust.
Automobiles individually owned, pass by probate.
I-bonds pass by JTWROS (probate if both spouses pass).
Maximum probate amount will be kept below the small estate limit of my state.
No real estate is involved.

Thank you for your kind words, Anon! Perhaps I think differently than others, but I truly believe that the best clients I have ever had have done a great deal of homework before beginning the process and also pore over every word of every document produced. So no, to me, describing you as any kind of a "fool" does not seem appropriate.

Instead of presuming I know anything about you or your state law and opining whether your approach is right or wrong, it's probably best to perhaps point out some items about your plan that jump out at me that you might consider before moving forward.

***Re: "I no longer live in a state where he is licensed" -- Some would question whether an out-of-state lawyer can ethically charge you anything for this kind of advice.

***Re: Nolo -- I am definitely a fan of their work; I own several volumes of their materials. However, as you implied in your original post, it is virtually impossible for a consumer book to delve into enough details that would be appropriate for every single case. Note also their many recommendations throughout to consult an attorney in case of a special or difficult situation.

***Is a trustee assigned if both spouses are incapacitated or if one spouse is incapacitated and the other is deceased? Also, if any of these scenarios occur, who would control your non-trust assets (which would essentially be everything except your personal effects)? Who determines incapacity?

***If you have durable/financial powers of attorney for both you and your spouse, do the powers granted mesh with the powers given to your RLT trustees?

***It is almost universally recommended to avoid naming the RLT as a beneficiary of your retirement assets because of the strong likelihood that the RLT would not qualify as a "designated beneficiary" under the Internal Revenue Code. If it doesn't, all retirement assets would have to be paid out within 5 years of the date of death, which would most likely create income tax issues. IRA Trusts are increasingly being recommended.

***Assuming your children are minors, have you instead considered a pot trust for them to stay in place until they reach majority or even beyond?

***Assuming your children are minors, are you planning to cover their college educations? If you have 529 plans, have you considered an Education Trust? If not, what will happen if your children don't use all 529 plan assets by the time they graduate or would have graduated?

***The lifetime estate tax exemption currently stands at $5.12 million per person. However, as of now, this is set to dramatically drop to $1 million on January 1, 2013, unless Congress is able to pass legislation revising the latter figure before then. While most think Congress will raise the exemption to at least $3.5 million, you cannot ignore the $1 million scenario. Be sure that you have set up marital and family trusts for after the first death that takes all these possibilities into consideration.

***Life insurance will become part of the estate of the policy's owner despite where the proceeds end up. Will this addition to either of your estates potential result in a higher estate tax burden under federal and/or your state's estate tax law? If you create an ILIT to own the life insurance policies, the proceeds would remain outside of your estates.

Zookey wrote:***Re: "I no longer live in a state where he is licensed" -- Some would question whether an out-of-state lawyer can ethically charge you anything for this kind of advice.

Maybe, but when I don't know where to go with a legal question, he's my backup plan that I can count on for guidance, even if not for services.

Zookey wrote:
***Is a trustee assigned if both spouses are incapacitated or if one spouse is incapacitated and the other is deceased? Also, if any of these scenarios occur, who would control your non-trust assets (which would essentially be everything except your personal effects)? Who determines incapacity?

I haven't planned for this type of multiple incapacity. Probate court would have to get involved. But we do have a series of 3 people who can determine incapacity for the successor trustee to take over.

Zookey wrote:
***If you have durable/financial powers of attorney for both you and your spouse, do the powers granted mesh with the powers given to your RLT trustees?

That's a moot point for me because it is the same people.

Zookey wrote:
***It is almost universally recommended to avoid naming the RLT as a beneficiary of your retirement assets because of the strong likelihood that the RLT would not qualify as a "designated beneficiary" under the Internal Revenue Code. If it doesn't, all retirement assets would have to be paid out within 5 years of the date of death, which would most likely create income tax issues. IRA Trusts are increasingly being recommended.

I will have to read about IRC "designated beneficiary." That's interesting, because that is something my parents' lawyer recommended for them.

Zookey wrote:
***Assuming your children are minors, have you instead considered a pot trust for them to stay in place until they reach majority or even beyond?

That was my first choice, primarily because the trustee only had to manage one trust. But the software could only do individual child sub-trusts, and I am OK with that.
Sub-trusts end at age 30, but our successor trustee will be fairly liberal with HEMS. We didn't make contingency plans for "what if they are getting divorced at age 30" type scenarios.

Zookey wrote:
***Assuming your children are minors, are you planning to cover their college educations? If you have 529 plans, have you considered an Education Trust? If not, what will happen if your children don't use all 529 plan assets by the time they graduate or would have graduated?

I actually forgot about those. Just started them and they were'n on my last quarter balance sheet.

Zookey wrote:
***The lifetime estate tax exemption currently stands at $5.12 million per person. However, as of now, this is set to dramatically drop to $1 million on January 1, 2013, unless Congress is able to pass legislation revising the latter figure before then. While most think Congress will raise the exemption to at least $3.5 million, you cannot ignore the $1 million scenario. Be sure that you have set up marital and family trusts for after the first death that takes all these possibilities into consideration.

This is one reason I didn't want to buy a $4000 estate plan now, only to have to re-do it in 6 months. NOLO recommends an expert for tax planning more complicated than AB disclaimer trusts.

Zookey wrote:
***Life insurance will become part of the estate of the policy's owner despite where the proceeds end up. Will this addition to either of your estates potential result in a higher estate tax burden under federal and/or your state's estate tax law? If you create an ILIT to own the life insurance policies, the proceeds would remain outside of your estates.

I thought about the ILITs because they provide some certain tax avoidance, but I can't stand the idea of Crummy notices, creating, signing and storing them. What a pain. I'll wait 'til the law changes, then react.

Zookey wrote:
I hope this helps at least a little bit.

You are way too humble. You are a estate planning expert giving relevant concerns, what could be more helpful!?